The Renminbi Rises: A Pragmatic Pivot, Not a Geopolitical Putsch

Maggie Blake
Apr 21, 2025
8 min read

Executive Summary

Beijing’s campaign to internationalize the renminbi (RMB) is often interpreted through a geopolitical lens as a direct challenge to the supremacy of the U.S. dollar. However, new analysis reveals a more pragmatic driver behind the yuan’s growing global role: economic survival. Data from the Center for Emerging Economies’ Yuan Adoption Tracker shows that emerging markets are not ditching the dollar in alignment with a Chinese political project, but rather as a rational response to acute economic pain inflicted by a strong dollar and the weaponization of finance.

This analysis finds that sovereign-level yuan adoption has occurred in two distinct waves, both coinciding with periods of severe U.S. dollar strength and heightened geopolitical tension. The first wave, around 2014, was triggered by the “taper tantrum” and initial Western sanctions on Russia. The second, more significant wave began in 2022, spurred by the most aggressive Federal Reserve tightening cycle in decades and the comprehensive sanctions imposed on Russia following its invasion of Ukraine. In both instances, emerging markets faced a familiar litany of woes: crippling capital outflows, soaring debt-servicing costs, and rampant imported inflation. The yuan, while no replacement for the dollar, offered a vital tool for mitigating these pressures.

Case studies of Brazil, Argentina, and Saudi Arabia reveal that the motivations for yuan adoption are overwhelmingly practical. Brazil seeks to reduce transaction costs with its largest trading partner. Argentina uses its currency swap line with China as a lifeline to stave off default amid a severe dollar shortage. Saudi Arabia is cautiously exploring yuan-denominated oil sales as a long-term hedge.

These are not acts of geopolitical defiance, but calculated moves to enhance economic sovereignty and resilience. While the yuan’s share of global payments and reserves remains modest, its growing utility as a trade and financing currency for the developing world signals a slow but steady shift toward a more multipolar international monetary system. U.S. policymakers must recognize that the dollar’s dominance is being challenged not by a rival, but by its own costs.

Introduction: The Pragmatic Pivot to the Renminbi

Beijing’s push to internationalize the renminbi (RMB) is often viewed through a geopolitical lens, framed as a core component of China’s broader effort to reshape the international order to its benefit. This narrative, prevalent in Western financial media, has fanned concerns that the Chinese currency could soon mount a serious challenge to the U.S. dollar’s global supremacy. However, new data reveals that the primary driver of yuan adoption among emerging economies is not a desire to align with an abstract Chinese political project, but a more immediate and powerful incentive: economic survival.

Analysis of the Center for Emerging Economies’ new dataset on global sovereign-level yuan adoption demonstrates that its internationalization has proceeded in two major waves, both occurring during periods of acute economic vulnerability for the developing world. The first wave crested around 2014, and the second began in 2022. Both periods were characterized by a potent combination of a surging U.S. dollar and escalating geopolitical tensions that underscored the risks of over-reliance on the dollar-centric financial system. For emerging markets (EMs) grappling with severe financial strain, the pragmatic pivot to alternatives like the yuan became a crucial tool for mitigating risk and navigating a turbulent global landscape.

Two Waves of Adoption: Dollar Strength and Geopolitical Triggers

The history of the yuan’s internationalization is a story of gradual, often halting, progress punctuated by sudden rushes. While early efforts under previous Chinese leadership focused on trade efficiency, the project has expanded under President Xi Jinping to encompass broader strategic goals. Yet, the catalyst for meaningful adoption has consistently been external shocks originating from the core of the dollar system itself.

The 2014 Wave: Taper Tantrum and the Crimea Sanctions

The first significant spike in yuan adoption was driven by a dual shock. In mid-2013, the U.S. Federal Reserve’s signal that it would taper its quantitative easing program—the so-called “taper tantrum”—triggered a surge in U.S. interest rates and mass capital outflows from emerging economies.

According to the IMF, the resulting market turbulence caused EM bond yields to respond far more strongly than U.S. yields, as investors who had been on an intense “search for yield” in a low-rate environment rapidly pulled back. By 2014, the ICE U.S. Dollar Index (DXY) had reached a 10-year high, placing immense strain on economies reliant on dollar-based trade and debt. Currencies like the Indonesian rupiah, Brazilian real, and Indian rupee depreciated by 10-15% in a matter of months.

This episode was a stark reminder of the vulnerabilities inherent in depending on dollar-driven capital flows. The following year, U.S. sanctions on Russia following its annexation of Crimea provided another impetus for diversification. While modest compared to later measures, these sanctions demonstrated how geopolitical conflicts could lead to financial isolation. For many emerging economies, the yuan became an attractive tool to manage import costs and service dollar-denominated debt by reducing exposure to volatile exchange rate shifts.

Includes all forms of renminbi internationalization, more info here.

The 2022 Wave: Aggressive Tightening and the Ukraine War

The second, more powerful wave of yuan adoption began in 2022. The Federal Reserve embarked on its most aggressive monetary tightening cycle in four decades to combat post-pandemic inflation, raising the federal funds rate by 5.25 percentage points. This, combined with global uncertainty, sent the dollar soaring to a two-decade high. Simultaneously, the comprehensive sanctions imposed on Russia by the G7, including the freezing of its central bank’s dollar reserves, represented a profound weaponization of the global financial system.

For Russia, the yuan became an economic lifeline, facilitating energy exports and preserving foreign exchange reserves. For other emerging markets, the message was clear: the dollar system could be used to inflict severe economic pain. This period saw a notable increase in the yuan’s role. According to Federal Reserve analysis of SWIFT data, the renminbi’s share of global payments jumped from 2.1% to 4.3% in 2023, overtaking the Japanese yen . While still a distant third to the dollar (47%) and euro (23%), this doubling of its share in a single year was significant. Furthermore, the share of China’s own trade settled in renminbi has climbed to between 25-30% in recent years.

Interestingly, research from the Kansas City Fed suggests that during this period, many EM central banks raised their own rates primarily in response to domestic inflation rather than directly in response to the Fed’s hikes . This indicates a greater degree of policy independence than in the past, but it does not negate the immense pressure a strong dollar places on their economies through capital flow and trade channels.

A Tale of Three Adopters: Case Studies in Pragmatism

Examining specific country cases reveals that the decision to embrace the yuan is rooted in practical needs rather than ideological alignment.

Brazil: A Quest for Trade Efficiency

In March 2023, Brazil and China announced an agreement to settle their massive bilateral trade in their own currencies, bypassing the dollar . As China is Brazil’s largest trading partner, this move was aimed at reducing transaction costs, streamlining trade, and avoiding the volatility of the dollar exchange rate. With a yuan clearing bank established in Brazil, the arrangement is a logical step for two major economies seeking to deepen their economic ties and reduce friction in their commercial relationship.

Argentina: A Lifeline in a Currency Crisis

For Argentina, a country in a state of perennial economic crisis and facing a severe shortage of U.S. dollars, its currency swap line with the People’s Bank of China has been nothing short of a lifeline. The $18 billion facility, which at one point accounted for nearly all of the country’s foreign reserves, has been used to make payments for Chinese imports and even to meet obligations to the IMF . The pragmatic importance of this tool was starkly illustrated after the election of President Javier Milei, who, despite his stridently anti-China campaign rhetoric, quickly renewed the swap line upon taking office, recognizing it as essential for staving off another default.

Saudi Arabia: A Hedge in a Shifting World

Since 2022, reports have indicated that Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan . This potential move away from the petrodollar standard, even on a limited basis, is significant. For Riyadh, it represents a strategic hedge. It aligns with the Kingdom’s Vision 2030 goal of diversifying its economy and reflects the reality that China is its largest crude oil customer. While analysts believe a large-scale shift to a “petroyuan” faces major hurdles and may take decades, the very consideration of such a move signals a recognition of shifting global economic power and a desire to have alternatives to the dollar-dominated energy market.

The Yuan's True Role: A Tool, Not a Rival

Despite its growing use in trade, the yuan is nowhere close to challenging the dollar’s overall dominance. Its share of allocated global foreign exchange reserves, after peaking at 2.8% in 2022, actually declined to 2.3% by 2024 as the yuan’s own exchange value depreciated . This decline, coming after the imposition of sanctions on Russia, strongly suggests that central banks are not rushing to the yuan as a geopolitical alternative for their reserve holdings. China’s strict capital controls and the yuan’s lack of full convertibility remain major obstacles to its becoming a true global reserve currency.

Instead, the yuan’s relevance lies in its utility as a complementary currency, particularly for trade and financing within the Global South. It offers a degree of insulation from the volatility of U.S. monetary policy and the reach of U.S. sanctions. For many nations, this is not about choosing sides in a great power competition, but about expanding their toolkit for macroeconomic management.

Policy Implications and Strategic Recommendations

The pragmatic, necessity-driven rise of the yuan has significant implications for the United States and the international financial system.

Recognize the Costs of Dollar Dominance: U.S. policymakers must understand that a strong dollar and the aggressive use of financial sanctions create the demand for alternatives. The more the dollar-based system is perceived as a source of instability or a tool of coercion, the more countries will seek to diversify away from it. A more sparing and multilateral approach to sanctions is crucial to preserving the dollar’s long-term appeal.
Strengthen the Core of the System: The dollar’s primary advantages are the depth and liquidity of U.S. financial markets, the strength of U.S. institutions, and the rule of law. Maintaining these fundamentals is the most effective way to ensure the dollar remains the currency of choice. This includes pursuing sound fiscal policy and maintaining a credible and independent central bank.
Don’t Isolate Emerging Markets: The U.S. should enhance financial cooperation with emerging markets. Expanding the Federal Reserve’s currency swap lines to more countries during times of crisis can provide a crucial safety net and reduce the incentive to turn to China’s state-directed alternatives. Supporting a well-resourced IMF that can act as a neutral arbiter of financial stability is also essential.

Conclusion: A More Multipolar Monetary System?

The internationalization of the renminbi is not the geopolitical tsunami that some headlines suggest. It is a slow, incremental process driven by the rational economic calculations of countries seeking to navigate a world where the benefits of the dollar system are increasingly weighed against its costs. The yuan is not poised to supplant the dollar, but its growing role as a trade and financing currency is undeniably contributing to the emergence of a more multipolar and fragmented international monetary landscape. The most potent challenge to the dollar’s supremacy comes not from Beijing, but from the strains that the dollar-centric system places on the rest of the world. Addressing those strains is the surest way to secure its future.